What If the Housing Bust Didn't Happen?

A decade after the worst of the housing bust, and after years of well-above-average home value growth, the housing market has yet to emerge from the shadow of the Great Recession. And by most accounts home values will, for years to come, continue to be below what might have been.

Even by the most optimistic projections, it will take until the end of 2019 for home values to reach the level where they would have been had the recession never happened, according to the most recent Zillow Home Price Expectations Survey of more than 100 economists and experts nationwide.[1]On average, panelists said it’s likely home values won’t reach those levels for more than five years – well into the 2020s, at least, and perhaps beyond.

And more panelists said that recently passed tax reform had them feeling more pessimistic about U.S. home values over the next five years than optimistic.

Home Price Expectations

Zillow

In the dozen years prior to the onset of the housing boom and bust (1987-1999), home values grew at an average annual pace of 3.6 percent.[2]If the recession and housing bust had never happened and home values had continued to grow at that same, steady pace year-after-year, the median U.S. home would have been worth about $214,500 as of the end of 2017.

But, of course, the boom, bust and recession did happen, and the market continues to play catch up. As of December, the median U.S. home was worth $206,300 – despite six years[3]of annual average home value growth of 5.3 percent during the recovery, a pace well above the historic average. The most optimistic quartile of survey respondents said they expect home values to grow at a 5 percent average annual rate over the next five years. The most pessimistic said they expected just 1.6 percent annual growth, on average, through 2022. Among all respondents, the average expected annual growth rate over the next five years was 3.4 percent – a rate slightly below pre-recession norms.

When asked how recent passage of the new tax law impacted their overall outlook for U.S. home values over the next five years, 41 percent of panelists with an opinion said their outlook was more pessimistic, compared to 31 percent who said their outlook was more optimistic. Of those with an opinion, 28 percent said their five-year outlook on home values was unchanged as a result of tax reform.

On average, respondents said they expected home values to gain 4.8 percent in 2018, with annual appreciation slowing to 3.7 percent in 2019 and to 2.7 percent by 2021 before accelerating somewhat to 2.8 percent annual growth by 2022. Panelists said they expect bottom-third, entry-level home values to grow 6 percent in 2018, down from 8.5 percent annual growth currently but still double the expected pace of top-third annual home value growth (expected to be 3 percent in 2018, down from 3.6 percent currently).

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[1]The Zillow Home Price Expectations Survey is a quarterly survey of more than 100 economists and real estate experts nationwide, sponsored by Zillow and conducted by Pulsenomics. The survey asks experts to offer their expectations for growth in the U.S. Zillow Home Value Index over the next five years, as well as offer their opinion on a series of supplemental questions determined by the survey authors. The most recent survey edition collected responses from 105 panelists and was fielded between Jan. 29 and Feb. 12, 2018.

[2]According to the S&P/Case-Shiller U.S. National Home Price Index (Single family, NSA)